Traders are pumping up the premiums in Cree, Inc. (CREE) options this morning after the company reported that it had lowered its revenue target for the current quarter. The stock is down 11 percent, sitting at 52-week lows.
With the spike in implied volatility, we can sell calls and puts (short strangle) to collect Theta and Vega decay. This will be a short-term trade that will look to take advantage of big spike in volatility while also collecting time decay.
This trade will look to collect a couple hundred dollars in premium over the next few days as selling pressure fades and bargain buyers begin to step in. Please note this is an un-hedged position that has unlimited risk. Not advised for beginner traders.
Trade Idea:
SELL -3 STRANGLE CREE 100 APR 11 45/42.5 CALL/PUT @3.05 LMT
Trade Details:
Type: Short Strangle
Expiration Month: April
Breakeven Level(s): $39.45 & 48.05
Maximum Gains: $906
Profit Taking Level: $350
Maximum Loss(es): Unlimited
Stop Loss: -$250